Newsletter September 2016

September 1, 2016

In this month’s newsletter:

Official Cash Rate

Is Bramwell Brown Moving?

Review of the Financial Advisers Act 2008

Financial Markets Conduct Act

Kiwi Property Group Bond Offer

Bank Rates

Click here to read the September newsletter.

Newsletter April 2016

March 31, 2016

In this month’s newsletter:

Secondary Market Bond Yields

Lifetime Income Fund

Financial Markets Conduct Act

Portfolio Administration

Click here to read the April newsletter.

Newsletter February 2016

February 1, 2016

In this month’s newsletter:


New Zealand and Australia

Official Cash Rate

Portfolio Administration

Click here to read the February newsletter.

Newsletter August 2015

August 3, 2015

In this month’s newsletter:

Adviser Fraud

Reverse Equity Mortgages

Official Cash Rate

Secondary Market Bonds

Click here to read the August newsletter.


Newsletter July 2014

July 1, 2014

In this month’s newsletter:

The Energy Sector – Are We Over-Exposed?

Investment Fundamentals

Mighty River Power Bond

Kiwi Income Property Trust Bond Offer


Click here to read the July newsletter.

Newsletter November 2012

November 1, 2012

In this month’s newsletter:


Fonterra – Trading Among Farmers

Stock & Share


GPG Capital Notes


Click here to read the November newsletter.

Newsletter September 2012

September 2, 2012

In this month’s newsletter:

Mighty River Power

Stock & Share

Fixed Interest



Click here to read the September newsletter.

Newsletter April 2011

April 1, 2011

Genesis Energy

The Genesis Energy bond offer has finally made it to the market, with an announcement the minimum interest rate will be set at 8.50%. Genesis is seeking to raise $225 million, with the ability to accept oversubscriptions of up to $50 million. The issue is similar to the New Zealand Post issue of 2009 in that it has a very long term (30 years) and has its rate reset every five years. The very long term allows Genesis to consider the funds as equity in their books, rather than debt. Standard & Poors have indicated it will assign high equity content (100%) to the bonds until 2021. It is possible (but not certain) that the bonds would be repaid then. With its long term I think you should view this opportunity as having similarities to a share investment as much as a bond investment. In order to cash in your investment prior to maturity you would have to sell it on the secondary market, which would incur brokerage of one percent.

  • Maturity Date – June 15th 2041
  • Interest paid quarterly
  • Minimum investment – $5,000
  • Credit rating – BB-
  • Minimum interest rate – 8.50%
  • Rate Set Date – April 14th
  • Closing date – May 18th
  • First Rate Reset Date – July 15th 2016

 Call the office as soon as possible if you would like to discuss this opportunity.

 Origin Energy

Origin Energy has issued rights to existing shareholders to fund various asset purchases, and to strengthen their balance sheet in the anticipation of pursuing other growth opportunities. They are seeking to raise approximately $2.3 billion. Origin is offering shareholders the right to purchase one new share for every five shares they currently hold. The offer price is $13 per new share. At present Origin shares are trading at $15.76, and the rights are trading at $2.76. The important thing for investors is to ensure they take up one of the alternatives. Either take up the new shares at the discounted price, or sell the rights to someone else. Doing nothing will mean you are losing the value of the rights assigned to you. Call the office if you need any guidance on what to do.

Fixed Interest

New issues of fixed interest have been few and far between recently, and the secondary market is struggling to draw money out of the trading banks. Most banks are offering 2-5 year rates of between 4.50% and 6.00%. Listed below are some of the more popular corporate bonds with their secondary market yields.


Bond                                       Interest Rate                        Maturity                               Yield

BNZ                                            7.50%                            September 2012                      3.91%

Auckland Airport                       7.19%                            November 2012                      4.25%

Telecom                                    6.92%                            March 2013                               5.08%

Infratil                                          8.50%                           September 2013                     7.85%

Wellington Airport                     7.50%                            November 2013                     6.50%

Tauranga City Council             7.05%                           December 2013                      4.59%

Auckland City Council              6.42%                           March 2014                              5.59%

Genesis Energy                         7.25%                          March 2014                               5.17%

Tower                                           8.50%                          April 2014                                 7.00%

Contact Energy                           8.00%                          May 2014                                  5.72%

Fletcher Building                       9.00%                           May 2014                                  6.80%

ANZ National Bank                    8.50%                           June 2014                                 5.01%

Vector                                           7.80%                         October 2014                            5.70%

Fonterra                                       7.75%                          March 2015                               5.18%

Goodman Property Trust          7.75%                          June 2015                                 6.39%

Infratil                                            8.50%                         November 2015                        8.50%

Trustpower                                  8.40%                         December 2015                       7.00%

Telecom                                      7.04%                          March 2016                               6.35%

Greenstone Energy                   7.35%                         October 2016                            7.24%

Auckland Airport                         8.00%                         November 2016                       5.97%

Meridian Energy                         7.55%                         March 2017                               6.00%

The main advantage listed bonds have over bank deposits is liquidity. If you need funds you can sell bonds in the secondary market, an option not available with bank deposits. Most banks will allow you to break a term deposit, however you are usually penalised heavily in terms of the interest paid to you.

Bernard Whimp

Banned company director, Bernard Whimp, is at it again with further unsolicited offers to investors to buy their shares. The recent offers have targeted shareholders of Contact Energy, GPG, Trustpower, DNZ Property, and Vector. On the face of it the offers look good, with the prices offered being well in excess of the current market price. However the fine print reveals payment will be made over a ten year period, and any dividends paid during that period will belong to Whimp. Some investors who have called me for advice have been hard to convince this is not a good offer. “How can an offer of $7.60 for my Contact Energy shares not be worth taking, if they are currently trading at $5.70?” “Even if I have to wait ten years, I’m receiving almost $2 more per share.”

This is where a basic understanding of the time value of money is essential. You need to be able to recognise that $5.70 today may be more valuable than $7.60 spread over ten years. Even if you don’t have the knowledge to do the calculations, an understanding of the concept allows you to question the merits for and against, and at least contact your adviser for guidance. As soon as you accept Whimp’s offer you forego any income from your shares. Your only return will be the annual instalments spread over ten years (if he honours his commitment). In contrast, if you hold the shares you continue to receive dividends. This alone should see the value of your investment exceed $7.60 over a ten year period. You could also expect to see a gain in the share price over a ten year period, although of course that cannot be guaranteed. Whenever you receive unsolicited offers for your shares don’t hesitate to make contact for advice. And be sure to send the reply paid envelope back to Mr Whimp, empty.

The Securities Commission has now been granted an injunction to stop Whimp from acquiring shares through his latest unsolicited offers. Although the offers are not illegal, it is an offence to mislead or deceive investors into accepting an offer. The Commission has decided the offers were misleading, and will look to uphold that stance in the High Court in May.


The KiwiSaver anniversary (July 1st) is due to roll around again. Those who have not yet joined should give it consideration. You can join the scheme provided you are not yet 65, and you must remain in the scheme for a minimum of five years, or until you reach the age of 65, whichever is the latter. The current Government subsidies make KiwiSaver an attractive proposition.

  • $1,000 kick-start
  • Matching Government contributions up to $1,043 per annum
  • Compulsory employer contributions of 2% of your salary
  • First home purchase subsidy of up to $5,000

Although I’m not a fan of the managed funds industry I see little point in not joining KiwiSaver. I firmly believe the Government will eventually make KiwiSaver compulsory, so you may as well take advantage of the subsidies while they are available. I’ve said in the past that the Government will drop the subsidies when they make KiwiSaver compulsory, however you may see those subsidies removed sooner due to the Canterbury earthquakes. The Government has said they are looking to balance the books through reduced spending, and KiwiSaver is one area they can make instant savings. There is little to be lost by joining KiwiSaver in its current form. After you have been in the scheme for 12 months you are able to take contribution holidays, so if you find it’s not for you, you simply stop contributing. Yes, the Government can (and will) change the rules over time, and if they make it compulsory your view on the merits or otherwise is removed from the equation anyway. You might as well take the subsidies while they are available. Call the office if you would like to discuss your situation.

Perpetual Reset Securities

I have written previously about the various perpetual securities on the market. I can understand the frustration of those who invested in the early perpetuals, which had reset mechanisms that would not be acceptable if they were issued now. At the time they were issued (pre global financial crisis) their terms were in line with the rates of the day. Most of the perpetuals have similar characteristics in that they don’t have a set maturity date, and they have their interest/dividend rates reset at various intervals. The rate resets are based on a benchmark rate plus a margin. Here are some examples.

Security                   Benchmark             Margin          Current Rate       Current Price/$100

Infratil                         1 Year Swap           1.50%                4.97%                        $59.80

Origin                         1 Year Swap            1.50%               4.92%                         $63.20

Rabobank                 90 Day Bill                0.76%               4.21%                         $76.00

Quayside                  3 Year Swap             1.70%               5.42%                         $86.00

ANZ                            5 Year Swap            2.00%                9.66%                        $108.45

BNZ                            5 Year Swap            2.20%                9.89%                        $103.90

Rabobank                 5 Year Swap            3.75%                8.78%                        $107.80

BNZ                            5 Year Swap            4.09%                9.10%                        $107.00 

Kiwi Bank                  5 Year Swap            2.90%                8.15%                        $102.50

Those investors holding the later perpetual securities should be mindful of their reset dates. As they get closer to resetting their interest rate, the interest rate environment at the time will have an influence on their price in the secondary market. I notice Infratil have been buying their own perpetual securities in the secondary market – generally a sign they are undervalued. For those with a bullish view on future interest rates the early perpetuals could be good buying at present. As with all investments I think the variability in these perpetual securities highlights the need to diversify your investments. If you have two or three of these in a wider portfolio of investments, chances are they won’t be causing you concern. The same may not be true, if on the other hand, you had backed only one of them.


Newsletter March 2011

March 1, 2011

The World Is Far From Fixed

I used this heading in the June newsletter, and I wonder if anything has changed since then. I’m no economist but I can’t help wondering about the merits of the U.S propping up their economy by effectively printing money. I receive numerous pieces of research from various sources, and the common thread in all of them is what is happening in the U.S and China. The U.S expects a budget deficit in 2011 of $1.645 trillion, dropping to a mere $774 billion by 2021! In my view the U.S never really acknowledged the problem they had when the global financial crisis hit – preferring to bury their heads in the sand and buy their way out of trouble. Like most developed countries the U.S uses monetary policy to influence their economy. Dropping interest rates stimulates an economy, and is a policy used by Governments in times of recession. We have seen it used here in New Zealand, with the Official Cash Rate (OCR) dropping from 8.25% in June 2008 to 2.50 % in 2009 and early 2010.

But what happens when you drop your benchmark interest rate to 0.25% and your economy still remains flat? In the case of the U.S they print more money to buy their own Treasury Bonds, injecting money into the economy to try and stimulate activity. This has a direct effect on their currency and is one of the reasons the U.S dollar has lost so much value over the last few years. Like New Zealand, other countries who export to the States complain about the exchange rate, and bemoan the fact the U.S is not putting in place the same austerity measures some of the other struggling nations are. Perhaps my grasp of economics isn’t what it should be but I’m certain at some stage any entity (individual/corporation/country), in order to prosper and grow, must earn more than it spends. The debt won’t miraculously disappear – it has to be paid back. At some stage they need to bite the bullet and stop spending more than they earn – this is what caused the financial crisis in the first place. Perhaps the U.S is happy to let inflation take care of their debt problem?

China is at the other end of the spectrum – increasing interest rates to try and keep a lid on rapidly rising asset prices. Their economy is growing very quickly, and is probably single-handedly responsible for keeping Australia out of recession. I saw some worrying statistics recently however, on Australia’s manufacturing sector, suggesting if it wasn’t for the current boom in commodity prices, Australia would be just as badly affected by the current recession as any other country. Anyone investing in Australia needs to question the sustainability of China’s growth as it could have a direct effect on the price of some of the shares they hold.

 The Code of Professional Conduct for Authorised Financial Advisers

I started discussing the eighteen code standards in the December newsletter, and will continue here.

Code Standard 14 – Before providing a financial adviser service, an AFA must have the competence, knowledge and skills to provide that service

This Code Standard is in addition to the standards that specify the academic qualifications required to be an Authorised Financial Adviser. We need to be able to demonstrate that we have a reasonable basis for believing we have the necessary knowledge and skills to provide the services we do.

Code Standard 15 – An Authorised Financial Adviser must have a knowledge of the Act, the Code, and other legal obligations relevant to the operation of the AFA’s practice as a financial adviser (including relevant consumer protection laws), that is adequate for the proper operation of that practice

All advisers need to have knowledge of the relevant legislation associated with providing financial adviser services, and all advisers must pass an exam, which I passed in November, based on the following legislation.

  • The Financial Advisers Act
  •  The Financial Service Providers (Registration & Dispute Resolution) Act
  • The Fair Trading Act
  • The Consumer Guarantees Act
  • The Trustees Act
  • The Code of Professional Conduct for Authorised Financial Advisers
  • Financial Advisers (Disclosure) Regulations

Code Standard 16 – To be an AFA, a financial adviser must attain the Unit Standard Sets within the National Certificate in Financial Services that are relevant to the financial adviser services provided by the AFA

My current qualifications (BBS and Graduate Diploma in Personal Financial Planning) surpass the National Certificate in Financial Services. The portfolio of evidence I submitted in December has been passed, and is currently with ETITO being moderated.

 Code Standard 17 – An AFA must maintain and keep current a professional development plan for each CPD period

All advisers must identify any areas for improvement in their competence, knowledge and skills in relation to the services they provide. We must document proposals for making those improvements, and must include details of courses, seminars or any other professional development planned to be undertaken.

Code Standard 18 – An AFA must undertake sufficient continuing professional training to maintain the AFA’s competence at a level appropriate for the financial adviser services the AFA provides or intends to provide, and keep up to date with developments relevant to the AFA’s practice

All advisers must complete a minimum of twenty hours of professional development per year, relevant to the financial adviser services provided. At least half of that professional development must be structured training (provided by a professional body). The Institute of Financial Advisers currently requires members to complete thirty hours of professional training each year.

I’m pleased to say I have satisfied all the requirements to become authorised. My application is now with the Securities Commission and I hope to have the AFA designation before the end of the month.

To sum up, the Code of Professional Conduct for Authorised Financial Advisers is a significant part of the new legislation designed to promote confidence in New Zealand’s financial services sector. Together with the Financial Advisers Act, the Financial Service Providers (Registration and Disputes Resolution) Act, and the new disclosure regulations, the Code should encourage consumers to have confidence in any financial adviser they deal with. Many advisers have decided the new laws, for various reasons, are too onerous, and are leaving the industry. Hopefully those that remain are committed to the principles of the Code, and the public can regain confidence in the professionalism and integrity of financial advisers and brokers.

For clients of Bramwell Brown Limited you can expect to see changes in the way we conduct business over the coming months. There are now significant compliance obligations on advisers, and even long-standing clients can expect to be asked to provide information on their financial position, their goals, and their tolerance for risk. Those not prepared to provide this information will need to sign a document instructing their adviser not to determine the suitability of the financial adviser services provided to them. I will try and make this process as simple as possible, but please remember I didn’t make the new laws, but I am obliged to comply with them.

Canterbury Earthquake

I would imagine the majority of us have been glued to our TV’s, following coverage of the devastating earthquake that hit Christchurch on February 22nd. It was a nervous time for those with family in the city, and our hearts go out to those who have suffered loss. It’s amazing to see the positive response, not only from the Canterbury community, but from Kiwis all around the country, and abroad. The huge sums of money needed to rebuild Christchurch must have a negative impact on the economy initially, however the longer term implications will be more positive. There is every chance the Reserve Bank will lower interest rates in the short-term to try and keep things moving.


Holders of AXA Asia Pacific shares will be aware of the current merger proposal between AMP and AXA. The proposal would see AXA shareholders receive AU$6.43 per AXA share made up of a combination of cash and shares in AMP. The exact value received is subject to a formula based on the average AMP share price between March 8th and March 22nd. A higher average share price sees shareholders receive more in shares and less in cash. I think the question investors need to ask is “do I want to be an AMP shareholder?” There is an understandable temptation to sell the shares and take the profit – AXA traded at $4.30 when the merger was proposed – they are now trading at $6.43. Tuesday March 8th is the last date AXA shares can be traded if the merger is approved. Call the office if you would like to discuss your situation.

Genesis Energy

We remain hopeful the proposed offer of up to $300 million of bonds from Genesis Energy will still proceed. We are keeping a list of clients interested in the offer and will make contact as soon as we have details. Please phone the office of you would like to be added to the list.


We still have a small amount of Infratil’s convertible 2017 bond available.

  • Maturity Date – June 15th 2017
  • Interest paid quarterly
  • Minimum investment – $5,000
  • Interest rate – 8.50%
  • Closing date – May 2011 (or earlier at the issuer’s discretion)


Newsletter February 2011

February 1, 2011


It’s disappointing to see Bernard Whimp making further ridiculous unsolicited offers to buy shares over the New Year period. Investors may have received offers from the likes of Cargill Securities, Powershares, NZ Investment Securities, and Carlyle Securities. All of these organisations are registered as limited partnerships due to the fact Whimp has been banned from being a company director.  Previously Whimp managed to buy 2.2 million DNZ Property shares from unwary investors at sixty cents. These shares are currently trading at $1.20. Unfortunately he is not breaking any laws – the offer price is clearly stated, and there is even a statement admitting that “the offer price does not, and should not be taken to constitute a representation as to the value of your shares.” He even suggests shareholders seek advice.

So why do people accept these offers? The offer price per share is generally in small print in the middle of the offer document, while the “TOTAL AMOUNT PAYABLE TO YOU” is highlighted at the top of a transfer form requesting your signature. The Fletcher Building offer was at $5.64 when the shares were trading at $7.75. An investor with 2,000 shares would have been offered $11,280. I’m guessing mainly elderly, inexperienced investors see the headline figure being offered, and having no idea of their true worth, accept without question. It’s difficult not to be cynical about his timing, also – just after Christmas when people are struggling to balance their finances, and when the Securities Commission was closed for the holiday period. If you ever receive unsolicited offers to buy your shares, don’t hesitate to ring the office and check the validity of the offer.

Asset Sales

The sale of state-owned assets is back on the agenda, and both sides of the argument can point to previous successes and dismal failures. My view on the politics of the subject isn’t important; however I hope any sale proceeds are used to stimulate the economy. There is plenty of misinformation in the press, particularly around the size of New Zealand’s overseas debt, with the distinction between Government and private debt often not being taken into account. If the partial sale of the likes of Meridian, Genesis, Mighty River Power and Solid Energy do go ahead, we would expect to participate in the initial public offerings. We would want an early indication from clients on the level of interest, so we can ensure an adequate allocation is available to satisfy demand.

The Code of Professional Conduct for Authorised Financial Advisers

I started discussing the eighteen code standards in the December newsletter, and will continue here.

Code Standard 8 – When providing a personalised service to a retail client an AFA must take reasonable steps to ensure that the personalised service is suitable for the client

This standard requires me to make reasonable enquiries to ensure I have an up-to-date understanding of a client’s financial situation, financial needs, financial goals, and tolerance for risk, having regard for the nature of the personalised service being provided. This code standard, together with code standard 9, will have the greatest impact on the way we conduct our business. Under the new laws I will not be able to offer investments (bonds, shares, debentures, KiwiSaver) without conducting an analysis of the client’s financial situation. This sort of analysis does not come without cost, and I intend to charge clients an hourly rate for this service. Experienced investors who use our services for broking only (with no advice) will need to sign a form instructing us not to determine the suitability of the service provided.

I can see significant differences in the requirements under this standard between clients wanting to sell securities, and those wanting to buy. Selling the shares of a deceased estate, or selling some of your Contact Energy shares to help pay for your daughter’s wedding does not require a great deal of financial analysis (if any) on my part. Buying shares and bonds as part of a long-term investment plan does. The code standard softens the requirement for the adviser to have an up-to-date understanding of the client’s financial situation with the caveat, “having regard for the nature of the personalised service provided.” My interpretation of this is that a financial adviser can exercise a certain amount of discretion regarding the amount of analysis required. Who needs a full analysis of their financial situation when their car has blown up, and they need to sell some shares to pay for the repairs?

Code Standard 9 – Where an AFA provides a personalised service to a retail client that is an investment planning service or that relates to a Category 1 product, the AFA must provide a written explanation to the client of the basis on which those services are provided. The AFA must also take reasonable steps to ensure the client is aware of the principal benefits and risks involved in following any financial advice provided as part of that service, having regard to the characteristics of the personalised service

As with code standard 8 this standard imposes obligations on advisers that incur a cost. If I have to provide a written explanation each time a client takes out an investment through our office, the client can expect to be charged for that service. You do have the ability to opt out of receiving a written explanation, and I can see this occurring for a large part of the transactional business we conduct on behalf of clients. There are occasions, however, where I think it is essential that recommendations and advice are documented in writing. As I said in the November newsletter, all clients will need to review what level of service they require from their financial adviser, and whether or not they are prepared to pay for it.

Code Standard 10 – When providing a class service to a retail client, an AFA must take reasonable steps to ensure the client is aware of the limitations of the service provided

A class service is a service where individual clients are not identified, and their particular financial situation has not been taken into account. An example would be the seminar on the Australian share market we held last year, or a KiwiSaver presentation to a group of people. This type of situation will require a general disclaimer from the adviser informing those present that their individual situation, needs, goals, and tolerance for risk have not been taken into account.

Code Standard 11 – An AFA must ensure there is an appropriate internal process in place for resolving client complaints in relation to the AFA’s financial adviser services

This is in addition to the requirement for all AFA’s to belong to an independent approved dispute resolution scheme. My process for dealing with complaints is documented in my Adviser Business Statement (a document required by the Securities Commission) and I will provide a copy to clients on request.

Code Standard 12 – An AFA must record in writing adequate information about any personalised service provided to a retail client

This should be standard practice for any advisory business. If we conduct business on your behalf we should be documenting that and keeping it for future reference. In the past these types of records were paper-based, and kept in filing cabinets. We now store all our records electronically, which saves a considerable amount of space, and is less prone to loss.

Code Standard 13 – An AFA must ensure that records of all information and documents required under this Code are kept for a minimum of 7 years

With advances in computer technology it is easy to store records electronically. I see no reason why we can’t keep records for longer than 7 years, and will do so for as long as it is practicable. I am often asked to look into a transaction that was conducted more than 7 years ago.


Infratil has extended its offer of unsecured, unsubordinated, convertible bonds. The initial offer had a maturity date of May 2016; however the new offer matures one year later.  Holders of the May 2011 bonds who did not accept the recent rollover are now able to participate in this offer.

  • Maturity Date – June 15th 2017
  • Interest paid quarterly
  • Minimum investment – $5,000
  • Interest rate – 8.50%
  • Closing date – May 2011 (or earlier at the issuer’s discretion)

The bonds are convertible, which means at maturity Infratil has the ability to issue shares to bondholders, rather than pay them out in cash.

Genesis Energy

Genesis Energy is considering making an offer of up to $300 million of unsecured, subordinated bonds. The proceeds of the offer are intended to be used as part of the funding for the acquisition of the Tekapo power stations. The offer is expected to open this month.



The merger of Marac, CBS Canterbury, and the Southern Cross Building Society has been completed with the new entity “Combined Building Society” achieving a BBB- investment grade credit rating from Standard & Poors. Those who invested previously in Marac will continue to benefit from the Government Guarantee, which has been retained by the new entity.


Holders of Equitable Mortgages Government Guaranteed debentures should soon receive claim forms from Treasury. Unfortunately no interest is accruing during the period between receivership and repayment; however that is possibly a small price to pay for the security of the Government Guarantee.


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